9056-2059 Québec – Tax Court of Canada finds that ETA s. 153(2) requires a reasonable allocation of consideration between component supplies

In order to promote the sale of its farm products (mostly honey), the appellant developed a “labyrinth” of trails on its forest lands and, when it sold tickets for access by visitors to the trails, stipulated that the ticket, generally sold for $12, also constituted a coupon of $1.50 to be applied to the purchase of honey or other products. However, if the visitor purchased further coupons, the value proposition improved, for example, six coupons (with the additional five purchased at $1.50 each), would purchase 20 times as much honey as one coupon.

In 9056-2059 Québec, the Federal Court of Appeal had rejected the CRA position that s. 138 applied to deem all the supplies by the appellant to be taxable supplies of access to a place of amusement (rather than zero-rated supplies of food), in light inter alia of beekeeping accounting for 50% of the appellant’s maintenance costs, and remitted the matter for redetermination by the Minister on that basis.

Before confirming the resulting reassessments that treated $1.50 of the ticket prices as being zero-rated consideration for the honey or other food products, and the balance as consideration that was subject to tax, Boyle J indicated that s. 153(2) required that the “cost of admission to … the … forest must be reasonably divided between access to the labyrinth and other activities, and the mandatory purchase of a coupon to be exchanged for a honey or maple food product,” and then stated:

Appellant was unable to present any valid reason why the value of the initial coupon should be other than $1.50, which is what it charged for the same coupons when purchased individually.

Neal Armstrong. Summary of 9056-2059 Québec Inc. v. The Queen, 2022 CCI 6 under ETA s. 153(2).